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James Hodgins , Chief Investment Officer

Curvature Hedge Strategies

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Markets. Typically the net Selling pressure for tax loss selling candidates is around December 15th. He saw the initial bounce off the bottom, and today retraced about a 3rd of that. Typically this lasts until about mid-January so some of his Top Picks, at year end time frames, are very tactical and shorter term in nature. He thinks we are getting an oversold bounce. One example is Argonaut Gold (AR-T) which is probably down about 80% this year. It came out of the TSX composite index as well as coming out of the GDXJ Index. There were 24 million shares of selling pressure last week. At some point, you get a reflexive sort of bounce off of those types of situations. Strategically he is still negative on the broader commodity space. One of the big things that he thinks will continue is that the US will continue to outperform the rest of the world, particularly in commodity driven countries like Canada, Australia and emerging markets. Also, thinks the US$ will continue to strengthen as well. A Canadian company that sells mostly into the US, and has US dollars as its revenue, with Canadian dollars as its costs, would be a big beneficiary. These are the types of companies he is looking at from the long side.

It is very unlikely that you will see a dividend increase in this anytime soon. The payout ratio is pretty high. Thinks there is some Canadian Western exposure here, and he would stay away from it. 7.2% dividend yield.

Has a small Short position in this, more because it shows up on a quant screen as being a short as momentum of forward estimates has been declining because of their exposure to energy services. The other issue he has with companies like this is that if someone is going to hire him to manage their mining and to pick good companies to buy and sell, which this company does, it is just another level of fees for investors, and this is hard for him to justify in his fund.

(A Top Pick Dec 27/13. Up 31.82%.) Has a unique business model, where they typically serve rural markets, and have done quite well. In the last year, they sold off their businesses in Singapore and in Spain, so have about $45 million in cash, so they have a lot of firepower to fund growth in other areas. Has been trimming this a little lately.

Using EBITDA, he thinks it is overvalued. This resembles something like a Corus Entertainment (CJR.B-T) now. It’s not a pure content play any more. Had thought it was a take out candidate purely from the content, but now they have their own channels and are now competing with the companies he thought might eventually buy them. He is Short this and would stay away.

Has been involved in the stock for the better part of a decade. Has been an under performer this year, although not extremely so. Tactically it is probably going to be the beneficiary of the end of tax loss selling, so he would expect a nice little bounce in a company like this that is showing some positive momentum in their backlog. Thinks they are going to have to raise more capital in order to fund the growth. Feels there is big growth eventually coming. It seems like ClearWire (which is owned by Sprint, and now owned by SoftBank) has finally got their act in order, in terms of rolling out the microwave backhaul part of their network and upgrading it. That, in addition to the contracts that DragonWave is winning in India, is good and is all positive. Tactically he thinks there is a bounce here to possibly $1.50. Be careful as it is a volatile name.

This carries some risks. The recent selloff was for the wrong reasons. It was because the leasing side had a poor quarter. Their growth is coming from the financial side by far. There was also a higher spend on advertising, but that is also driving growth. Margins have recently been increasing because they just redid their loan book and, instead of borrowing at 10%, they are now borrowing at around 7%. There is a nice net interest margin. Have grown the loan book by roughly 70% over the last 15 months. Thinks growth will still be in the 50% range on a go forward basis over the next year, and that the stock will keep up with it.

A very cheap turnaround story. Sold off a processing business about a year ago. In the meantime, some activist shareholders got involved and brought in a new management team that knows more of the mortgage business and are doing a phenomenal job in building out their team. Trading below its BV, which is currently around $9.70 per share, whereas its comps typically trade between 2 and 3 times BV. As the company re-ramps up its mortgage book, you see a pretty easy double here. Thinks the ramp up in their mortgage book is going to happen over the next three quarters and you will see a re-rating in the stock.

This has been a tough one. It’s a company that he owns and has liked in the past. They are rolling out, through their partners Thales and Panasonic, seatback payment processing systems on airplanes, in addition to off-board initiatives with NCR as a partner. What is happening is that airlines are taking a lot longer than he suspected and were led to believe, to switch on the new payment processing systems and train staff to use the new system. This is a big recurring revenue model. They just did a merger with Open Jaw that will give them some more scale and some cross-selling opportunities, particularly in Europe. Did a recent financing to fund that. Unfortunately, the financing did not go well, so it is probably going to be dead money for a while. Still likes it fundamentally and its valuation. Over a two-year period, he thinks the stock goes a lot higher. Over the next 2-3 months, it is dead money.

He recently covered his Short on this, because he was expecting this bounce. However, the stock has not bounced a lot. They recently cut their dividend. He would stay away from this. He will re-short if there is any bounce heading into January. Fundamentals are deteriorating. Other companies that you might consider are Mart Resources (MMT-T) and ??? (See Top Picks.)

Natural gas. Doesn’t think there is huge upside, but also doesn’t think there is much downside. Stock had a little selloff last week on a well that had a problem with some equipment. They were rushing to get that well done because they were making a land package acquisition in a competitive situation in the Montney. Arc Resources (ARX-T) is also bidding on land around this company, and he thinks that Arc could take this company out. Even at the current level of commodity prices, he thinks they are going to grow their NAV to $2 a share over this year. One of the very few companies that is fully funded at current levels of commodity prices. His one-year target is $2.

Has a small short position as part of a basket that is against his biggest Long Equity Financial Holdings (EQI-T) (?) in that sector. He is short this because it is one of the few publicly traded mortgage companies originators that has some pretty significant Western Canadian exposure, which will act as a bit of a headwind. Trading at close to 2X BV, whereas the company that he likes better is trading below its BV. 7.8% dividend yield is safe as long as the real estate market in Canada holds up and interest rates stay low. At some point we are going to see residential real estate in Canada roll over, and certainly in areas that are going to be hit by the decline in energy.

(A Top Pick Dec 27/13. Up 30.56%.) He still likes this a lot. Recently acquired Sintrom, but more importantly the former CEO left, and he thinks the new CEO is basically a rock star in the industry. Was CEO of Teva Canada, and grew it by 5 times over his tenure. He has an EBITDA target for this company of over $100 million in 2018. Thinks the stock will perform alongside. This stock trades at a big discount to its peers. (Says it could have been a Top Pick again tonight.) His 1-year target is $3. One of the misunderstood things is that when drugs come off the patent in Europe, they typically don’t fall in revenues by more than 50%, because it is a very highly fragmented market. Some investors are modelling in a typical North American patent cliff of 80%-90%, which is just wrong.

He is Short the stock. It is mostly a valuation trade. Has been a pretty good winner this year, but he thinks that winners will be sold in January, so there is a bit of a tactical aspect to the trade. Also, it is very expensive. Effectively they are going out and buying all these little chains that are in food courts, and trying to gain some synergies. At the end of the day, this is a rollup in a financial arbitrage strategy, and thinks it is pretty expensive to keep this going.

Likes a lot. Thinks they are going to continue to gain share in sports, online streaming, and providing backbone for those services. The new NHL apps that they are powering are fantastic. The reason it is not a Netflix is that the demand for sports content is not there. Thinks the stock is going a lot higher. Growing at about 30% on the revenue line, and which might accelerate over the next year.

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